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Group Size and Social Ties in Microfinance Institutions

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Author Info
Klaus Abbink
Bernd Irlenbusch
Elke Renner

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Abstract

Microfinance programs provide poor people with small loans given to jointly liable self-selected groups. Follow-up loans provide incentives to repay. We experimentally investigate the influence of those features on strategic default. Each group member invests in an individual risky project, whose outcome is known only to the individual investor. Subjects decide whether to contribute to group repayment or not. Only those with successful projects can contribute. The experiment ends if too few repay. We investigate group size and social ties effects and observe robust high repayment rates. Group lending outperforms individual lending. Self-selected groups show high but less stable contributions. (JEL C90, H41, I38, O16, Z13) Copyright 2006, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/ei/cbl001
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Publisher Info
Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 44 (2006)
Issue (Month): 4 (October)
Pages: 614-628
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Handle: RePEc:oup:ecinqu:v:44:y:2006:i:4:p:614-628

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Related research
Keywords:

Find related papers by JEL classification:
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ernesto Reuben & Frans van Winden, 2006. "Reciprocity and Emotions when Reciprocators Know each other," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Soyolmaa Batbekh and & Keith Blackburn, 2008. "On the Macroeconomics of Microfi?nance," Centre for Growth and Business Cycle Research Discussion Paper Series 106, Economics, The Univeristy of Manchester. [Downloadable!]
  3. Alessandra Cassar & Lucas Crowley & Bruce Wydick, 2005. "The Effect of Social Capital on Group Loan Repayment: Evidence from Artefactual Field Experiments," Artefactual Field Experiments 0032, The Field Experiments Website. [Downloadable!]
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